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In general there are three types of references for describing location in flying:
1. Message sender
2. Message receiver
3. Independent geographical point

I think in DCS the 1st type is ever used. An example might be a wingman "I see a bandit to my 2 o'clock." The direction being relative to a person's position and facing from the person talking and not you, the listener.

Second type is relative to you like "Bandit your 3 o'clock" or "350 25 kilometers". B-R-A-A or B-R-A is bearing range and altitude (and aspect). This type of call will be used many times especially when the object is close.

Third type is geographic and is often relative to a fixed position called bullseye. For example "Bandit is bulls 310 200, six thousand." In this case the bandit is along a direction 310 (north-west being 315) for 200 distance (miles or km depending on country). For you to know his position you must know where bullseye is (look for blue or red three-ring marker on map) and where you are. This takes some skill and practice but thankfully these are given when the location is somewhat far away and time is available.

Similar to bullseye you may get JTAC coordinates in latitude-longitude or MGRS. These are also geographic systems. In this case you must use the map and either the L/L or MGRS overlay to find what location is described and then note the terrain features (or vector from another location if featureless like the ocean). There is a key (ctrl-Y? alt-Y?) to change which location type format is shown under the mouse cursor on the F10 map.

How do we get allies to call in air coordinates of enemy planes for Mig 21? How do we process these coordinates?

Directions from AWACS or GCI are available via the F10 menu if there is either a correct Russian Radar or an AWACS in the mission. Those calls will be in BRAA.

AI planes "announce" engagements in bullseye but don't report in such a way as to give deliberate guidance, it's mostly just informative calls. ie so and so is engaged offensive at XYZ. The description is in a post above, if you are aware of where that is, you might get a fair chance at interpreting the calls rough area using the map. You will get a decent altitude so all is not lost.

Thanks for the replies. Are there any tutorials which show us how to use the instruments (without looking at the f10 map) to hunt down aircraft from bullseye or latitude longitude method? I am used to putting in 9-line into the CDU on the A-10C to find ground targets... what is the equivalent of this for air targets using Mig-21?

There is no equivalent. Or one could say only your head (to digest BRAA callouts) and your primitive, short-range radar are (a radar, which IRL was used basically only in the last phase of intercept, as it was not good really for anything else). Remember you're flying late '60s-early '70s plane, designed to be guided primarily by ground stations (and their implementation in DCS is sorely lacking).

There is no equivalent. Or one could say only your head (to digest BRAA callouts) and your primitive, short-range radar are (a radar, which IRL was used basically only in the last phase of intercept, as it was not good really for anything else). Remember you're flying late '60s-early '70s plane, designed to be guided primarily by ground stations (and their implementation in DCS is sorely lacking).

They are working as intended, yes. On the other hand, all they do is tell you where your target currently is, with a (very) coarse heading information (hot/cold/flanking). In real life obviously the ground controller could provide much more than that.
First of all, give you a proper heading and speed of the target. Especially 'flanking' leaves you with two unfortunately opposite options to guess. Also they might provide you with actual instructions on where to steer for an intercept.